Analysis of US Business Cycles and Fiscal Policy: A Report

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Business Conditions Analysis

1)
The business cycle is the cycle which shows all the stages from where business can go that is it
basically shows the up and downs of a business in any country.
Fluctuations for short period of time in terms of GDP of the US will be referred to as the
business cycle.
Parameters which are responsible for the formation of a business cycle are like employment,
health facilities, tax benefits, income etc.
Business phases have various impacts on the environment whether it could be related to the
business and trading also.
The crest and troughs in the graph of the business cycle are determined by NBER.
NATURE OF BUSINESS CYCLE:
This stage passes through the peak stage, recession stage, and recovery stage expansion stage.
These all the phases will describe the economy of our country that is it will show our economic
status. Where all the phases of the business cycle have their effects, the recession phase is major
where there is a downfall in the economy of the country USA leading to basic problems like in
employment factors, in income factors etc (Llopis, et. al., 2015). The recession is basically the
period from the time when there is the highest point in the business cycle to the lowest point in
the business cycle.

For the high recession point, the recovery period goes up to 7 quarters First of all the committee
should be sure about the period of recession that it is ended and then only the next phase that is
trough will be started.
1) Shortest and longest both of the recessions are included in this:
2) Approx 3 – 3.5 percentage changes in terms of employment is seen in this phase.
3) Out of total employment, only 2.3 % loss goes to the payroll job (Kim and Nelson,
2017).
4) The average length is roughly about 12 months
MEMO:
DATE: March 01, 2019
TO: Boss
From: Employee
Subject: Determining the dates of a recession
I am writing here, after our conversation as a Situation like after the recession
period, sometimes it is expected to go the recession period again after the
trough period has been started. After all these phases when we will reach
through the phase of expansion that is a high level of increase in growth.
Well-Defined research should be defined for the peak and trough point.
Generally, the complete business cycle is measured from the peak point to the
next. Mostly the business cycle of the US goes up to five to seven years and
lasts up to 10 years.
Whenever there is a change in the economic activity and they are measured in
terms of time, some time is taken for an economy to go from a change in peak.
As nothing in the economy is constant, NBER is the thing that determines
peak and troughs date respectively in the US business cycle. Questions like.
What are the likely suitable type models accurate for checking the macro
economy? So the most appropriate answer to this question should be given

as: It is totally based upon the type and purpose of the model.
Thank you for your cooperation.

2)
Fiscal policy
Fiscal policy is the most important instrument in modern times. It is referred to as government
policy for not only raising the expenditure but also concerned with raising the revenue collection
in an economy with the intent of the change in the rate of GDP and the economy. Fiscal policy is
in the hands of the ministry of finance (Sims, 2016).
CHARACTERISTICS:
Fiscal policy primarily aims at:
1) Economic growth.
2) Price stability.
3) Accelerate the rate of economic development.
4) Optimum allocation of resources.
5) Redistribution of income for mitigation inequality.
Economic growth:
The government of US imposes all types of taxes and through these tax collected they spend
more on defence, roads or other areas and ultimately help in the generation of the employment
which helps in the growth of the economy.
Stability of price:
How does the government maintain price: through the increasing or decreasing inflation. To
modulate inflation the government of USA has a tool in his hands in the name of fiscal policy
(Pereira and Lopes, 2014).
Capital Formation:
The primary objective of fiscal policy is a capital formation in terms of building schools,
hospitals, etc.

As soon as the government imposes taxes it will spend something on capital formation
(Summers, 2014).
Allocation of resources:
Allocation of scarce resources can be done primarily through the fiscal policy.
Redistribution of income:
The income is different at every single level. A low income would earn accordingly, the middle
level will earn higher and the upper level will earn the highest. The taxation structure of the USA
is progressive.
Lags for the fiscal policy:
Recognition lag
The government should be aware of the economic status of the country. It should know when its
economy is rising and when it is falling down. It should know very well when to need a fiscal
policy if the economy is in trouble condition. This uncertainty is termed as ‘recognition bag”.
Administrative lag
In this, we have to decide the amount to be taken in dollars and chose which policy is suitable to
be implemented at the time of recession. This is a little difficult act.
Implementation lag
It is basically the gap between policy action and economic effect. In this lag, we know which
policy is to be used at the time of agreement (Summers, 2014). For appropriately making a
difference in GDP and employment with respect to their size, we should know the amount of
time to be taken for the dollars to retain in the economy.
The effectiveness of fiscal policy

Recession
Fiscal policy is very much helpful in fighting with the recession. A cut in the taxes and increase
in government spending can encourage public expenditure. The fiscal policy will be more
effective when there is no employment.
Weak economy
The time when the economy of the US is in the weak mode is most prone to have a powerful
fiscal policy (Sims, 2016). A change in tax will lead to a change in spending. For the purchasing
of goods and services, payment through dollar is most appropriate but not for the transfer
payments.

References:
 Kim, C. J., & Nelson, C. R. (2017). Has the US economy become more stable? A
Bayesian approach based on a Markov-switching model of the business cycle. Review of
Economics and Statistics, 81(4), 608-616.
 Llopis, J. A. S., Millán, J. M., Baptista, R., Burke, A., Parker, S. C., & Thurik, R. (2015).
Good times, bad times: entrepreneurship and the business cycle. International
Entrepreneurship and Management Journal, 11(2), 243-251.
 Pereira, M. C., & Lopes, A. S. (2014). Time-varying fiscal policy in the US. Studies in
Nonlinear Dynamics & Econometrics, 18(2), 157-184.
 Sims, C. A. (2016, August). Fiscal policy, monetary policy, and central bank
independence. In Kansas Citi Fed Jackson Hole Conference.
 Summers, L. H. (2014). US economic prospects: Secular stagnation, hysteresis, and the
zero lower bound. Business Economics, 49(2), 65-73.